Are you aware of the term forwards and futures markets? Well, if you are not, don’t worry because in this article you will learn a lot about these terms. Let’s have a look at these!
A forward contract is a secret agreement among two groups for purchasing currency at a predefined price and a pre-determined date in OTC markets.
A futures contract is a standard dealing between two partners that deliver currency at a predefined price and a future date.
Forward and futures markets are not like spot markets because both these do not deal with real currencies. Alternatively, they work in contracts that show claims to the future settlement date, a specific type of currency, and a certain price for each unit.
In forward markets, OTC trade contracts between two groups; these two groups define the terms and conditions of the agreement according to themselves.
In futures markets, the futures contracts are traded on the basis of expected settlement date and size on public product markets like the Chicago Mercantile Exchange.
National Futures Associations in America govern the futures markets. Future contracts comprise of specific information such as:
The exchange is referred to as a trader’s counterpart, offering settlement and clearance services.
Forward and futures contracts are compulsory and usually expire for cash on the exchange. One can also trade contracts before their expiry date. Currency forwards and futures markets guarantee risk protection when buying and selling currencies. Typically, large international corporations make use of the forward and futures markets to protect against exchange rate fluctuations, but traders also participate in these markets.
Let me tell you some terms that you will usually see:
All these terms are almost identical and relate to the forex market.
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